With the Federal Reserve having now marked the end of such policies in the United States, a new and, to some extent, necessary wave of restructurings can be expected in the short and medium term.
Following the onset of the 2008 financial crisis, a wave of restructurings was expected as deteriorating market conditions impacted the already stressed balance sheets of companies. The period of 2012-2015 was expected to be the peak for restructuring activity, as pre-crisis LBO and M&A debt (the so called “wall of debt”) came up to maturity. Instead, throughout the crisis years, restructuring and insolvency activity has remained generally low as central bank policies and open capital markets, particularly in the U.S., provided companies with easy and affordable access to capital.
Now, following the Federal Reserve decision in December 2015 to raise interest rates for the first time in eight years, it appears that it has embarked on the slow unwind of its zero–interest-rate policy. Against this backdrop we have also witnessed a reduction in quantitative easing in the U.S., a slowdown in China and increased geo-political tensions in the Middle East, which have resulted in a painful correction in world equity markets. In the UK alone, there has been a marked increase in profits warnings — 100 warnings were issued in Q4 2015, which is the highest quarterly total since 2009.